Tuesday, April 01, 2014

Construction Spending increased slightly in February

by Calculated Risk on 4/01/2014 11:09:00 AM

The Census Bureau reported that overall construction spending increased in February:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2014 was estimated at a seasonally adjusted annual rate of $945.7 billion, 0.1 percent above the revised January estimate of $944.6 billion. The February figure is 8.7 percent above the February 2013 estimate of $869.9 billion.
Both private and public spending increased slightly in February:
Spending on private construction was at a seasonally adjusted annual rate of $680.0 billion, 0.1 percent above the revised January estimate of $679.1 billion. ...

In February, the estimated seasonally adjusted annual rate of public construction spending was $265.7 billion, 0.1 percent above the revised January estimate of $265.5 billion.
emphasis added
Private Construction Spending Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 47% below the peak in early 2006, and up 58% from the post-bubble low.

Non-residential spending is 23% below the peak in January 2008, and up about 42% from the recent low.

Public construction spending is now 18% below the peak in March 2009 and up less than 1% from the recent low.

Private Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 14%. Non-residential spending is up 12% year-over-year. Public spending is down slightly year-over-year.

To repeat a few key themes:
1) Private residential construction is usually the largest category for construction spending, and is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power.  Now the key sectors of office, retail and hotels are starting to increase, but from very low levels.   As an example, lodging construction spending was up 40% year-over-year, office spending up 19%, and retail spending up 18% year-over-year.

Based on the architecture billings index, I expect private non-residential to increase further this year.

3) Public construction spending was up slightly in February, but is only up 1% from the low in April 2013.  It appears that the drag from public construction spending is over.  Public spending has declined to 2006 levels (not adjusted for inflation) and was a drag on the economy for 4+ years. In real terms, public construction spending has declined to 2001 levels.

Looking forward, all categories of construction spending should increase in 2014. Residential spending is still very low, non-residential is starting to pickup, and public spending appears to have bottomed.